The baby-boomers have enjoyed some of the best economic times in human history, but as they move into retirement, will their children be left holding the baby? Lifting the retirement age and ‘work til you drop’ is one solution, but there must be others… right?
In my last post I noted how Hockey was looking at putting increases to the retirement age back on the political agenda.
As I said, the economics of Australia’s ageing population are clear. If we don’t change course now, we’re looking at massive increases in health and aged-care spending – a burden that will be placed on a relatively smaller and smaller working-aged population.
And it sets the stage for an inter-generational war. Will the boomers accept less generous provision in retirement? Or will working Aussies wear more tax?
And if neither side fell on their sword willingly, who would win if push came to shove?
But it got me wondering if these are really the only options. I’m wary of the way politicians will ‘frame’ a debate to limit the perceived choices available.
A: “It’s the environment or the economy. You can’t have both.”
B: “Then I guess I’ll take the economy.”
A: “Good choice.”
B: “I’m just grateful to live in a free country.”
So I started digging around a little more, and found this little gem. This comes from a group called .id – a bunch of demographers based in Melbourne.
In their report, Three Growth Markets in Australia they make the case that the baby boomers are retiring fast, but they’re not the only story in the population data.
In fact, there are another two ‘bulges’ coming through the population data, following about 30 and 60 years behind the baby boomers.
This chart, which shows you which age-cohorts will grow most over the next 20 years, gives you the idea.
As you can see, there’s the baby boomers moving into their 70s and 80s. But there’s also solid growth around the 35-45 brackets, as well as another bulge coming through in primary school aged children.
But as .id note, this is not just ‘generational echoes’ – the children and grandchildren of the baby boomers, but reflects trend changes we’ve seen in birth rates and immigration in recent years.
The first thing .id note is that there was a sustained long-run trend decline in fertility in Australia between 1976 and 2001. That’s the black line in this chart here:
Around the turn of the millennium, it was assumed that the fertility rate would keep on falling (dashed line).
But for some reason, we started turning it around, and the fertility rate started increasing. Today, we’re not all that far below a replacement rate – the birth rate required to keep the population stable.
It’s interesting to wonder about what caused this change. Family friendly policies and baby bonuses might have helped. But the fact is, that in a number of countries around the world at that time – from America to Europe and even Japan, fertility rates stabilised and started increasing.
Wow. What’s going on here? The whole world just caught a baby bug?
At any rate the pick up in Australian fertility led to increased Australia’s annual production of babies by about 50,000 a year. In just six years, we’ve found ourselves with 300,000 more Aussies than we thought we’d have.
As .id note, net immigration tends to track the business cycles. When economic times are good, we open the door to more immigrants. With 20+ years without recession, we’ve seen pretty solid immigration levels from 1995 on.
But what really jumps out is the spike in migration that coincided with the GFC. In 2008 migration surged, topping out at 300,000 persons in 2009 – a figure double the previous peaks. With the Australian economy the ‘envy of the world’ through the GFC, Australia became an attractive destination for foreigners, and many Australians living overseas repatriated.
It hasn’t unwound yet either. It’s still up above that 200,000 mark.
Balancing the Baby Boomer Bulge
So .id argue that these two factors – the pick up in fertility rates, and a change in immigration levels have changed the shape of Australia’s population profile. And they’re partly responsible for the post-boomer bulges we see in the population profile.
And the pick up in fertility and migration have meant that our dependency ratios are not as bad as they otherwise would have been, and have helped us prepare for the retirement and ageing of the baby-boomers.
So what do we take from this?
Well, these gives us two alternative strategies for dealing with an ageing population – alternatives that is to retiring later or working til you drop.
But how workable are they?
Immigration is always going to be a contentious issue. However if the boomers realise it means they don’t have to give up their benefits, and the rest of the country realise it might mean they don’t have to pay as much tax, then we might suddenly find there’s a political willingness to ‘import’ the labour we need.
Apart from the moral squeamishness I get about letting such selfish concerns dictate immigration policy, it’s not a long run solution anyway. Unless, we’re importing foreigners with higher fertility rates than ours (which would also be an odd selection criteria for a visa), then we’re just kicking the can down the road, and deferring the problem onto future generations.
(Though I guess it seems some people don’t have a problem with that.)
The only thing that’s going to fully deal with the problem is a pick up in fertility rates. But that’s a bit of social engineering I don’t think anyone’s got a handle on. The baby-bonus was one attempt, and it may have had some success, but a few thousand dollars seems neither here nor there in planning the kind of family you want to have to me.
We’re talking about the deep social and cultural factors that support families and children. Cash just doesn’t cut it.
So it looks like we’re back to dealing with the retirement age / tax trade off again. There just doesn’t seem to be anyway around it.
I’ve got a few ideas about changing the culture of work, and shifting our work life balances… but you’ll have to wait for my book to come out.
Sometime this century, I swear.